There hasn’t been much to cheer about for Netflix, Inc. (NASDAQ:NFLX) shareholders since the company’s quarterly earnings report. Netflix stock has been rejected by technical resistance and plagued by the post-election selloff in the tech sector. All told, NFLX has fallen nearly 10% since late October.
Click to Enlarge However, with support holding firm near $110 heading into an historic month of growth for the broader market, now might be the right time to revisit bullish positions on NFLX options.
Technically speaking, Netflix stock is showing signs of life after pulling back to support in the $100 region. NFLX, bolstered by its rising 50-day moving average, has quietly added more than 4% in the past week.
Shares have reclaimed their 10-day moving average in the process, and have set their sites on $120 and their 20-day trendline. A move above this region would confirm that the bounce from $110 has legs to run further.
There is a bullish trend budding for Netflix stock on the sentiment front as well.
For instance, the number of bullish analysts crept higher last week, after Brean Capital initiated NFLX stock with a “buy” rating and a $145 price target. At last check, Zacks reports that 18 of the 32 analysts following Netflix stock now rate the shares a “buy” or better.
The 12-month consensus price target, meanwhile, rests at $123.13 — a far cry from Brean’s $145 target, but just a stone’s throw from NFLX’s current perch. In other words, there is ample room for additional upgrades or price-target increases.
Bullish sentiment also is on the rise within the options pits. In fact, Netflix stock has seen its December put/call open interest ratio fall from a reading near 1.06 to its current perch at 0.90. Puts are still near parity with calls among short-term options, but rising call activity could have bullish implications for the shares.
Overall, Dec 16 series implieds are pricing in a move of about 6% for Netflix stock in the next month. This places the upper bound at $125.25 — well above the consensus 12-month price target — while the lower bound rests at $110.75.
2 Trades for Netflix Stock
Call Spread: For those looking to chase the potential bull rally in Netflix stock heading into the end of the year, a Dec $120/$125 bull call spread has considerable potential. At last check, this spread was offered at $1.51, or $151 per pair of contracts.
Breakeven rests at $121.51, while a maximum profit of $3.49, or $349 per pair of contracts, is possible if Netflix stock closes at or above $125 when December options expire.
Put Sell: Alternately, if a more neutral-to-bullish stance fits your trading style better, a Dec $110 put sell has a high probability of finishing out of the money. At last check, this put was bid at 94 cents, or $94 per contract.
As usual with a put sell, you keep the premium as long as NFLX closes above $110 when December options expire.
On the downside, if Netflix stock trades below $110 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $110 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
